“Arab Spring” & Beyond: Perspectives on the MENA Region
• Presentation for the World Strategy Forum 2011
• Seoul, Korea 14-15 June 2011
Dr. Nasser Saidi,
Chief Economist & Head of External Relations, DIFC Authority
14th June 2011
Agenda
• MENA Instability & Spillovers
• Regional & Global Implications of the Arab
Firestorm
• Addressing MENA Vulnerabilities
• Policy Agendas for Transformation & Stabilisation:
Domestic, Regional, International
MENA Regional Developments
• Period of momentous change, challenges and opportunity that can lead
to a historical shift in growth & development patterns
• Prior to recent events the pace of economic activity was set to continue
to recover in the MENA & GCC region after the Great Recession &
Great Financial Crisis
• MENA Growth is expected at 4.1% in 2011 compared to 3.8% in 2010.
• Sharp divergence of growth prospects between MENA Oil Exporters and
Oil Importers
• Oil Markets & Financial markets have factored in higher risks emerging
from recent developments
• Management of Transition periods will be critical to final outcomes
• EU-US-China-Korea-GCC have Strategic interest in smooth transitions
& avoidance of ‘failed States’: policy action required
World: Economic Growth Outlook
Source: IMF WEO (Apr 2011), DIFC Economics
Arab World: Divergent Growth Patterns, Rising Inflation
Source: IIF Regional Overview May 2011
Oil Exporters: Recent Fiscal Policy Measures
Source: IMF REO, April 2011
Fiscal Policy Measures Announced Since 2010
Source: IMF REO, April 2011
MENA Regional Turmoil => Increased Divergence
Divergence to increase b/n oil exporters, oil importers & labor exporters
• GCC growth - boosted by high oil output & prices; Bahrain’s protests will impact growth in
2011 while in KSA, growth will be boosted by the populist fiscal measures.
• Downside risk remains that private sector activity will be subdued/crowded out.
Source: IIF May 2011
Reactions to Turmoil: Equity Markets
Index, Nov 1, 2010 = 100; Nov 1, 2010 – 31 May 2011
MENA Oil Importers
MENA Oil Exporters
Source: Bloomberg
Note: 1/10 – Tunisia; 1/24 – Egypt; 2/15 - Libya
Reactions to Turmoil: Higher CDS spreads
CDS spreads (in bps) Oct 26, 2010 – May 31, 2011
MENA Oil Importers
MENA Oil Exporters
Source: Bloomberg
Note: 1/10 – Tunisia; 1/24 – Egypt; 2/15 - Libya
Reactions to Turmoil: FDI, Tourism & Borrowing Costs
Tourism Receipts
Sovereign Spreads
(Percent of GDP)
(Basis points)
Source: IMF – “Middle East and Central Asia –
REO”, April 2011, DIFC, Dubai
Food Prices & Political Instability
• Food price inflation increases likelihood of civil conflict and civil strife
• Food price inflation can have severe socio-economic & political effects in
emerging countries, well illustrated in recent events in rioting,
demonstrations & political changes in MENA countries.
e.g. In Egypt, food represents 40% of household budgets & food price
inflation hit 20% resulting in near 10% decline in purchasing power.
• Higher Fuel & Food prices will add import cost of some 3% of GDP for
Egypt, Lebanon, Jordan, Morocco, Syria, & Tunisia
• “Inflation targeting” cannot neglect food price inflation: Inflation cannot be
dealt purely through monetary policy.
• Macroeconomic policies cannot be shaped in isolation from measures
to ensure social safety nets are in place and that the poorest people are
protected.
Agenda
• MENA Instability & Spillovers
• Regional & Global Implications of the Arab
Firestorm
• Addressing MENA Vulnerabilities
• Policy Agendas for Transformation & Stabilisation:
Domestic, Regional, International
Higher Oil Prices can Derail Economies
• Three of the past five global recessions have been triggered by a Middle East
geopolitical shock that propelled oil prices skyward!
• Higher Oil prices leading to:
(a) Rise in commodity & food price inflation, exacerbating effects of diarrheal
monetary policies in advanced economies (US, EU)
(b) Larger Budget & Trade deficits can derail fragile jobless recovery in US, EU
• In the short term, oil prices could spike due to: the fear premium of political
contagion, possible effects on oil production and transportation networks, a surge
in precautionary stockpiling of oil and other factors.
• This could, in the worst case scenario lead to stagflation, a combination of
rising inflation and recession. It will certainly increase inflation and reduce growth
in energy- and commodity-importing countries.
• In the medium term, it is likely that new governments in oil producing nations
would seek to maintain oil production and export earnings, suggesting an eventual
return to equilibrium.
Oil Price & Unrest in the MENA region
Source: Bloomberg
Maritime chokepoints critical to petroleum markets
Source: EIA
Note: Circles represent millions of barrels per day transported through each chokepoint. Arrows represent common
petroleum maritime routes
Maritime transit chokepoints are narrow channels along widely used global sea routes. Because about one half of the
world's crude oil supply is moved by tankers on maritime shipping routes, world oil transit chokepoints are a critical part
of global energy security.
Other Impacts of MENA Turmoil
• Risk aversion rising: higher short-term economic and financial volatility,
and likelihood of a correction in price of risky assets
• Sovereign Asset Freezes: increases perceived riskiness of advanced
economy assets
• Lower MENA growth resulting in lower growth of EU exports to MENA
• Energy transport infrastructure security & energy supply vulnerability:
• Oil chokepoints are critical part of global energy security, whose
blockage leads to a substantial disruption in energy markets.
•
Straits of Hormuz, Suez, Bab-el-Mandeb and Malacca are world’s
biggest maritime chokepoints critical for petroleum markets with
strategic geopolitical importance.
Wider Implications of the “Jasmine Revolution”
• Spill over into GCC & oil producers, Africa, Central Asia
• Arab uprisings will likely result in a change in strategic alliances affecting
traditional role & influence of US and Europe whose political capital &
moral authority have been damaged by Iraq, Afghanistan wars & support of
Israel.
• China and Turkey likely to be strategic gainers
 Turkey’s strategic outlook is gradually shifting towards the ME, while
accession to the EU has not resulted in major developments
 MENA - China trade increased close to 100 times over to $175bn in 2010
from $2.3bn in 1990 (Middle East countries account for almost 90% of the
trade)
Economic & Geostrategic landscape of MENA shifting toward more
regionalism (GCC inviting Morocco, Jordan) and East
Agenda
• MENA Instability & Spillovers
• Regional & Global Implications of the Arab Firestorm
• Addressing MENA Vulnerabilities
• Policy Agendas for Transformation & Stabilisation:
Domestic, Regional, International
Potent Mixes: Young Population & Youth
Unemployment
Source: UN Population Division, DIFCA Economics
Female Labour Force Participation Remains Key
• FLFPR lower in MENA than in countries with similar income/wealth levels
• Higher LFPR in MENA could raise GDP by about 20-25%!
Source: World Bank database, DIFCA Economics
MENA Vulnerabilities: Demographic, Political &
Economic
DEMOGRAPHIC
FACTORS
POLITICAL FACTORS
ECONOMIC
FACTORS
Fraction of population
under 25
Voice & Accountability
Food Price Inflation
Youth Unemployment
rate
Political rights
GDP per capita
Age Dependency ratio
Corruption
Military Spending as a
percentage of GDP
Civil Liberties
Infant Mortality Rate
Press Freedom
Source: DIFCA Economics
Agenda
• MENA Instability & Spillovers
• Regional & Global Implications of the Arab Firestorm
• Addressing MENA Vulnerabilities
• Policy Agendas for Transformation & Stabilisation:
Domestic, Regional, International
Policy agendas for transformation & stabilization:
domestic, regional, international
DOMESTIC
• Political Transformation
• Governance
• Social Safety Nets
• Educational
Transformation
• Women Empowerment
• Fiscal Transformation
• Economic
Diversification
• Job Creation
REGIONAL
• MENA Bank for
Development &
Reconstruction
• GCC Common
Market & Common
Currency
• Regional Economic
Integration
• Develop Local
Currency Financial
Markets
• Shift Economic Policy
Toward Asia & EMEs
INTERNATIONAL
• Resolve IsraelPalestine Cancer
• Aid
• Trade
• Investment
• Economic Focus not
Military Engagement
Final thoughts I
• Period of Transformation for MENA: Transitions & their
Management will be critical to final outcomes
• International consequences: oil price surge, spill over to food
prices, increased energy insecurity & risk aversion in financial
markets.
• MENA regional turmoil spillovers: increased regional divergence,
plunge in equity markets, lower tourism & FDI and higher risk
premiums & borrowing costs.
• Not a “Berlin Wall” Moment but Arab countries will need to ‘own’
their transformations and be “able to clean up their own backyard”
• Geostrategic implications will include change in global strategic
alliances with new players like China, Turkey and others gaining
importance.
Final Thoughts II
• Vulnerability indicators + underlying conditions => Firestorm
conditions are present in other countries e.g. Central Asia has a
similar set of crucial preconditions.
• MENA countries Need to address Demographic, Political & Economic
Vulnerability Factors: Need Growth to be both inclusive and has a
trickle-down, “pull up” effect.
• Foreign Policies relating to MENA Trade, Aid, Immigration, Arms &
Military intervention need to be fundamentally revised
• Addressing vulnerability underlines the importance of Job Creation,
lowering income inequality, greater inclusiveness and promoting
growth & development through institutional reform and improved
governance
• Set-up a MENA Bank for Reconstruction and Development not a
‘Marshall Plan’
감사합니다
nasser.saidi@difc.ae